Business News

Staples, Inc. Announces Third Quarter 2010 Performance

Thursday 18. November 2010 - Staples, Inc. (Nasdaq: SPLS) announced today the results for its third quarter ended October 30, 2010. Total company sales of $6.5 billion for the third quarter of 2010 increased slightly compared to the third quarter of 2009.

Net income for the third quarter of 2010 increased seven percent year over year to $289 million, and diluted earnings per share, on a GAAP basis, increased eight percent to $0.40 from the $0.37 achieved in the third quarter of 2009.

Adjusted diluted earnings per share of $0.41 for the third quarter of 2010 increased five percent compared to adjusted diluted earnings per share of $0.39 achieved in the third quarter of 2009. These adjusted results exclude pre-tax integration and restructuring expense of $9 million during the third quarter of 2010 and $16 million during the third quarter of 2009.

“Our growth initiatives in North America continue to gain traction, and we’re making great progress improving the profitability of our International business,” said Ron Sargent, Staples’ chairman and chief executive officer. “Our strong financial performance reflects solid execution as we invest to drive long term growth.”

On a GAAP basis, third quarter 2010 operating income rate increased 71 basis points to 7.87 percent compared to the third quarter of 2009. Excluding the impact of integration and restructuring expense, third quarter 2010 operating income rate increased 60 basis points to 8.01 percent. This increase primarily reflects improved product margins, lower delivery and distribution expense, as well as reduced amortization.

The company’s effective tax rate for the third quarter of 2010 was 37.5 percent, compared to 34.5 percent for the third quarter of 2009. The increase in the effective tax rate was due to the expiration of tax provisions this year that allow for the deferral of income tax on certain foreign earnings.

The company generated year to date free cash flow of $758 million after $246 million in capital expenditures, ending the third quarter of 2010 with $2.6 billion in liquidity, including $1.4 billion in cash and cash equivalents. During the third quarter, the company repurchased 8 million shares of common stock for $156 million.

North American Delivery

North American Delivery sales for the third quarter of 2010 were $2.5 billion, an increase of three percent in US dollars and two percent in local currency compared to the third quarter of 2009, as a result of strong customer acquisition. Operating income rate was flat at 8.85 percent compared to the third quarter of 2009. Operating income rate improvement driven by reduced amortization expense and supply chain efficiencies was offset by investments in growth initiatives.

North American Retail

North American Retail sales for the third quarter of 2010 were $2.6 billion, an increase of one percent in US dollars and flat in local currency compared to the third quarter of 2009. Comparable store sales for the third quarter of 2010 declined one percent versus the third quarter of 2009. Operating income rate increased 47 basis points to 10.58 percent compared to the third quarter of 2009. This improvement primarily reflects increased product margins, as well as reduced depreciation, offset by investments in labor. North American Retail opened 10 stores and closed one store, ending the third quarter of 2010 with 1,897 stores in North America.

International

International sales for the third quarter of 2010 were $1.4 billion, a decrease of four percent in US dollars and one percent in local currency compared to the third quarter of 2009. Top line growth in local currency in the European Contract business was more than offset by a two percent decrease in comparable store sales in Europe versus the third quarter of 2009. Operating income rate increased 150 basis points to 4.33 percent compared to the third quarter of 2009. This increase primarily reflects improvements in the European Printing Systems, European Delivery, and Australian businesses, as well as reduced amortization, somewhat offset by modest deleverage of fixed expenses on lower sales in European Retail. European Retail opened one store and closed three stores during the third quarter of 2010. The International business ended the third quarter of 2010 with 381 stores.

Outlook

For the fourth quarter of 2010, the company expects sales to increase in the low single-digits compared to the fourth quarter of 2009. The company expects to achieve diluted earnings per share, on a GAAP basis, in the range of $0.38 to $0.40 for the fourth quarter of 2010. Excluding approximately $8 million of pre-tax integration and restructuring expense, or approximately $0.01 per share, the company expects to achieve adjusted diluted earnings per share for the fourth quarter of 2010 in the range of $0.39 to $0.41.

For the full year 2010, the company expects total company sales to increase in the low single-digits compared to the full year 2009. The company expects to achieve diluted earnings per share, on a GAAP basis, in the range of $1.22 to $1.24 for the full year 2010. Excluding approximately $60 million of pre-tax integration and restructuring expense, or $0.05 per share, the company expects to achieve adjusted diluted earnings per share for the full year 2010 in the range of $1.27 to $1.29. The company remains on track to generate free cash flow of more than $1 billion for the full year 2010, after spending approximately $400 million on capital expenditures.

For the full year 2011, the company expects to achieve total company sales growth in the low to mid single-digits, and diluted earnings per share in the range of $1.50 to $1.60. The company expects full year 2011 earnings per share to benefit from the ongoing integration of Corporate Express, growth in high margin services business, reduced interest expense, share repurchases, as well as the expectation that its effective tax rate will return to approximately 34.5 percent. For the full year 2011, the company expects to generate more than $1 billion of free cash flow after spending approximately $500 million on capital expenditures.

Presentation of Non-GAAP Information

This press release presents certain results both with and without integration and restructuring expense associated with Corporate Express. This press release also presents certain results both with and without the impact of fluctuations in foreign currency exchange rates. The presentation of results that exclude these items are non-GAAP financial measures that should be considered in addition to, and should not be considered superior to, or as a substitute for, the presentation of results determined in accordance with GAAP. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below. Management believes that the non-GAAP financial measures presented provide a better comparison to prior periods because the adjustments do not affect the on-going operations of the combined businesses. Management uses these non-GAAP financial measures to evaluate the operating results of the company’s business against prior year results and its operating plan, and to forecast and analyze future periods. Management recognizes there are limitations associated with the use of non-GAAP financial measures as they may reduce comparability with other companies that use different methods to calculate similar non-GAAP measures. Management generally compensates for the limitations resulting from the exclusion of these items by considering the impact of these items separately according to GAAP as well as non-GAAP results and outlook, and in addition, in this press release, by presenting the most comparable GAAP measures ahead of non-GAAP measures and providing a reconciliation that indicates and describes the adjustments made.